A Firm Has EBIT of $15 Million,interest Expense of $1

question 2

Multiple Choice

A firm has EBIT of $15 million,interest expense of $1 million,and pays taxes of $4 million.The firm has a market-to-book ratio of 5.75.If the firm has 30 million shares outstanding at a current price of $12 per share,what is its ROE?

• A)24%
• B)2.8%
• C)16%
• D)4.2%
• E)18%

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Definitions:

Estimated Bad Debts

A provision for accounts receivable that are expected not to be collected, thereby adjusting the value of gross receivables to a more realistic figure.

Uncollectible Account

An account receivable that a company deems unlikely to be collected and thus writes off as a bad debt expense.

Net Income

The total earnings of a company after subtracting all expenses from revenue, representing the profit made in a given period.

Working Capital

The difference between a company's current assets and current liabilities, indicating the liquidity available for running day-to-day operations.